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Linking Your Financial and Operational Plans to Optimise Your Supply Chain
October 12, 2021 Blog


While it is true that the supply chain is an operational function, it has become more and more strategic nonetheless, moving from being logistics-centred to an integrated framework that encompasses various aspects of the business. This evolution notwithstanding, what has remained constant is how an organisation must optimise its supply chain if it is to meet or even exceed its profitability goals.

The supply chain being an operational function affects a range of operational metrics directly linked to financial performance. Most notable among these metrics are customer service, responsiveness, cost management, asset utilisation and operational flexibility, and doing well in each guarantees a company’s financial success, even amidst uncertainty. This scenario in turn underpins what has been true all along: That the operational side of a business is inextricably tied to the financial aspect.

Therefore, you as an organisation must look at your financial and operational plans as one interconnected process instead of two disparate ones. In doing so, you can better cope with increasing volatility and uncertainty because according to the IBM white paper “Sales and Operations Planning Insights” by Business Analytics Executive (and former CFO), Jim Collins, linking financial planning to operational planning helps “Put information and insight into the hands of the people closest to the business to make resource allocation decisions quickly and intelligently.”

In other words, when you plan your organisation’s finances while keeping in mind its operations and vice versa, you are empowering key decision-makings with the kind of relevant data that they can use in making the best decisions for the company. This process is shown in the diagram below, where operational planning and financial planning come after strategic planning and target setting, but before reporting and forecasting.

As the diagram shows, operational planning will have key drivers in the following departments:

  • Sales & Marketing, which are in charge of sales forecasting, promotions planning and applying data (like weather data, social media data and economic data.
  • Human Resources, which is responsible for workplace planning, determining the attrition rate and analysing employee performance.
  • IT, which is in charge of portfolio planning, ROI and TCO analyses and shared services planning.
  • Operations, which is tasked to handle demand planning, analyse throughput and apply predictive analysis.

By bringing together financial planning and operational planning, you are effectively making the organisation both operationally savvy and financially efficient because the encompassing process helps you do the following:

  • Craft supply chain plans that are optimised and actually executable.
  • Make a financial plan based on the forecast of the operations team.
  • Manage demand forecasts.
  • Plan for both long-term cost reduction and sustainable growth.
  • Streamline key businesses processes.
  • Improve inventory management practices.
  • Identify potential risks at every stage.

Challenges to Address

Linking operational planning with financial planning will be a challenge, mainly because of issues outlined in IBM’s white paper, “Boost Supply Chain Agility with Advanced Planning and Forecasting.” These include difficulties in optimising resource allocation, siloed and/or underutilised data, inability to respond to supply chain disruption and spreadsheet limitations (lack of standardisation, data integrity and transparency and slow data collection and verification).

Slow data collection and verification, in particular, significantly hampers finance and operations teams who, according to the same paper, “spend as much as 60–70% of their time on data collection and validation instead of on value-added analysis to support the business.” This issue is further complicated by data being poor, siloed or inaccessible, leaving you with a trove of data but little insight on how to best use them or if they are even relevant, to begin with. Even companies who still rely on spreadsheets are bound to have problems, as manual inputting all but guarantees errors in data collection.

The best way to address these challenges is to add automation, deep insights and agility to your planning, which is something you can do by leveraging a range of solutions. A better alternative, however, is to deploy IBM Planning Analytics to automate key processes, analyse voluminous data hosted on the IBM TM1 Server and conduct what-if scenario analyses wherever necessary.

With IBM Planning Analytics, you and your team will be spending less time collecting data and more time on actual value-added planning, forecasting and reporting so you can deliver optimised insights to the organisation’s key decision-makers. Planning Analytics is also a shared solution, allowing members from different departments to collaborate easily, conveniently and seamlessly and come up with a single truth across the entire organisation. This limits human error and ensures across-the-board consistency and validity of insightful data.

In short, you and everyone else in the organisation can input and access data, visualise the results of data analyses in near real-time and collaborate in decision making using the same, easy-to-use self-service platform in the different stages of planning. Just as important, IBM Planning Analytics enables you to adjust your plans easily if, indeed, a change of plans is needed, as when market conditions changes, when supply-demand requirements are altered or when unexpected events occur.

Planning for Success

Unsurprisingly, companies worldwide, like Allen Edmonds and Rotkäppchen-Mumm, are already leveraging IBM’s Planning Analytics, with the former having experienced 50% faster reporting and a 10% improvement in forecasting accuracy. Said Connie Walsh, Director of Retail Inventory, Planning and Analysis at Allen Edmonds: “Our reporting processes are at least 50% faster now, which has a real positive impact on the way we do business.”

Rotkäppchen-Mumm, on the other hand, has reported a 22% increase in accuracy of selected sales forecasts and a considerable reduction in stock levels but sans an increase in stockouts. “The ability to access IBM Planning Analytics from any device enables us to work on the move, spend more time with business users out in the field and work much more flexibly and productively,” said André Birrenbach, Chief Information Officer at Rotkäppchen-Mumm.

Another use case is that of FleetPride, which has accelerated inventory movement, reduced labour costs and increased revenues since using IBM Planning Analytics. “Line managers all have quick, easy access to the latest operational data via detailed reports that help them to make smarter, more informed decisions to improve the efficiency of the entire supply chain,” said Homarjun Agrahari, Director of Advanced Analytics at FleetPride.

A robust, well-structured supply chain can lead to a healthy bottom line, and organisations like yours can ensure that by linking your financial and operational plans, which are closely connected, to begin with. But in order to best do that, you will need a modern, comprehensive solution such as IBM Planning Analytics to streamline the process and make it easier for everyone involved. You will also need an enterprise solution, like Adept, to consolidate all your financials and cover budgeting, planning and forecasting.

To find out more about IBM Planning Analytics and how it applies to your business, click here.